The 1989 boom was caused by the influx of Wall Street money into the coin world. As the stock market stagnates and withers under the twin effects of the bad economy and the repeal of the 1934 short sell rule, I feel that the retail investor and hedge funds will be attracted to the investment potential that lies within rare coins. Investment classes almost flow in a generational pattern. Bull/Bear periods in the stock market last roughly 20 years, and though by strict count we are not yet due for a bear period, it is most certainly upon us, driven by various long term situations that we seem not to be able to control. Once this generation of investors has been sufficently burned by bad market conditions, money will flow from wall street on the retail level into the stability of both gold and rare coins. This will cause coin values to appreciate on a steeper upcurve, and also will bring major Wall Street hedge fund money once again into the coin market. Also, the very people who are now inheriting the estate of their parents are the same people who grew up in the sixties, enchanted by whitman folders and finding 'good ones' in circulation. Their dormant coin collecting inner self will emerge again on a much higher level, able to build collections while still sensibly investing their inheritance. Collectors, who may save diligently for that certain coin, will be competing with retail stock investors who have free capital with which to buy at high levels with ease. That 20 thousand dollar 1914-D will only represent to them buying 200 shares of xyz at 100 a share. They do this every day, and think nothing of it. But, now that the market is in a bear situation, unless you are shorting you are seeing your money drizzle away at an alarming rate, with nothing but bad news on the horizon. Sooner of later, alternative investments will be the only way to preserve capital. Coin prices have built a 'base' over the last decade and are now entering an accumulation phase. This is where we find new money coming in, and purchasing coins which are already a limited and scarce resource. Stock market money tends to be wise money, which will not be buying HSN or bullion mint coinage. They will be buying pcgs certified coins, since they represent a guarantee of grade and value that the non-coin collector investor will find most reassuring. And since the expense of the initial purchase is secondary, they will be buying top population coins in the four and five figure range. The outcome of this is that I feel we are going to see a retracement of the 1989 highs, the steep accumulation phase increasing prices quickly and dramatically for the top rarities, keys, pcgs certified coins of all types. I could be wrong with some of this, but I think the general theme of this post will prove true in the coming years. It is a good thing to own something that a rich man wants to buy :smile
There was a bit of a conversation along these same lines at my coin club's meeting last night. We were wondering whether we'd start seeing an influx of money into coins. The runup in gold prices may also be drawing some attention to coins. I don't know why coins would somehow be seen as "safer" than stocks or a safe harbor for money coming out of the stock market. But then, I look at multi-cent purchases as major, never mind multi-thousand There is a six letter word that describes what could happen as well: Starts with 'B' and ends with "ubble". And that rhymes with "Trouble"...
The thing is, the majority of people who invest in coins never actually hold the coins they buy, thus they really have no idea or preference as to whether it's simply a per ounce of metal or a registry worthy collection. IRA bullion investment is a prime example of this. Quite frankly, unless they also collect coins, I don't think they'll know enough, or even care for the most part, so long as they have x amount of gold or silver, and in the long run, I don't see it as making much difference, especially in the modern series of bullion. Of course, as an investor, I tend to stay as clear from bullion as possible, for a multitude of reasons. Even mid grade stocks are more stable in the marketplace, and I've never been much of a gambler when it comes to my money. Guy~
I think today is a good illustration, Apple has lost over $10 a share, a 5% drop. To someone holding 200K in the market, thats $20K in red. Its ugly to see that, I can tell you from experience. I dont think my box of pcgs goodies dropped 5% today, and I feel good about that
The best a general investor (be they retail or professional) can hope to do is speculate in a collectible market. While it is possible Wall Street may once again place its gaze upon the coin market, there are a great many reasons why I think it would little like the 80s; here are two: Collectibles do not have any intrinsic value. Their value is determined wholly by the confluence of popularity and disposable income (anyone want to by a tulip?). To be sure there is some fuzziness at the junction of coin and bullion, but if you spend $20k on a 14-D dime, you are the proud owner of 1.11 cents worth of silver. Collectibles are not liquid. I can execute a 1,000 share stock trade in a few seconds at a cost of $20. Need to sell $50k worth of coins at market price? Perhaps there are places to unload them quickly, but for $20, not so much. While it is interesting to speculate about Wall Street, I think more important question is how many collectors is the hobby gaining or losing. These are the people who create sustainable long term pricing.
Ambro... I am in accord with what your post states in General. The one thing I see different is that bullion will be in greater demand! The average person will not be able to throw down 200K on a rare coin, however, 1k on a Saint or Eagle is very real. For those of you who play this Bull Market on Metals...set your targets and when they are reached, sell! The cycle will again return to nominal levels just as it has in the years gone buy. Saddle up Cowboys, it time to ride the Golden Bull.... RickieB
I completely disagree. Coins have intrinsic value. Of course there is the bullion value, and if you do a little research you can also establish the average and minimum valuations for each coin above bullion value over the past decade or two decades to establish a floor. Coins are also liquid. Many coins can be sold immediately at a local coin dealer for full value minus the usual bid/ask spread. Higher value coins can be sold through any of the auction sites available. There are two things to keep in mind. One is that inflation is a perpetual feature of our monetary system, and coins will probably move higher over time in an irregular manner regardless of anything else that happens as long as you don't pay bubble prices for them. The other is that coins have more in common with real estate than stocks. Each piece is unique, the transaction costs are high, both are inflation hedges, and they both require a little work to sell for full value.
I for one do not believe the media hype of doom and gloom. The stock market, which I know very little about, is at record highs, a cpl days of dropping and profit taking does not spell gloom. Coins are up, bullion is up, real estate, depending where you live, is up beyond what it should be and is correcting to healthy levels. Unemployment is down under 5%. I do agree 100% on the baby boomers entering the hobby again, that is healthy, the more the better. This is not a politic site, and this thread can easy go that way if we are not careful.
Just a note on how the market has changed. In 1934 an SEC regulation was instituted that only allowed the short selling of a stock that was on the uptick. Holding a stock 'short' means that you make money when it goes down. In mid July of 07 that restriction was done away with. Very shortly, Hedge funds, which throw billions of dollars into the market daily, found that they could cascade stock prices downward, kick out the stops and drive prices down almost at will. While *they* profited, many smaller investors lost bazillions of dollars through this legal theft. There is no sign of this letting up. Also, there is no sign of any willingness by the SEC to change this situation. If you look at the 1 year chart for mostly any stock, you will note this change in Mid July. It had a profound impact. Indeed, like the Rapa Nui, short sellers can 'cut down the last tree on the island'. This, coupled with an unstable credit/oil/recession threat situation has caused the beginning of what very well may be a long term decline. To think that we are immune from another '1929' is sheer folly. There are no guarantees, and since Nostradamus retired, no one can give us a clear prediction. Indeed, no one can tell you at 9:30 AM that the stock market is going to have a good/sideways/ or horrible day. No one. Coins, mostly immune to day to day drastic changes in value, will weather this quite well. Bullion may very well lose some of its draw if Oil prices moderate, or decline. Not that this is likely, but the two are tied together on a worldwide basis that will only increase. No, this is not a political forum, and forgive me it some of this sounds that way.
Despite what many think, the price of oil has been rather stable. It's the deflating dollar that makes it appear to be on the rise, just like all other products, bullion included. Coins remain stable because their prices aren't driven by the strength of the dollar as much as it is by demand and collector interest. Guy~
Folks I think there is something you are missing. There will never be another another time like the late '80s when investment firms became embroiled in the coin market. Why ? Because the govt. came down fast and hard on those folks the last time they did it. They are not likely to make that mistake again. Secondly, when the market began crashing in 2000, the large players began then to look for other places to put their money. By '02 they were buying up rarities and expensive coins as fast as they could find them. In other words, wall street money has been strongly involved in the coin market for the past 5 years now. So the thing you are predicting will happen - already has happened.
Great post, Ambro, thanks, I concur with most everything you say (I think plain vanilla bullion will continue to do well). When the dot.com bubble burst, stock investors fled the market seeking some sort of safe haven with a good return. Where did they go? Real estate. And you've all been witness to what happened. Another bubble and another bursting. As I write, the stock market is off to the worst start in history surpassing the previous nasty beginning in 1932. Should the stock market continue to melt down, either now or in a couple of years, where will folks turn to preserve capital while hopefully earning a fair return? Coins are as good a choice as most and with coins you can also buy rare gold and silver. There are some who are predicting a major collapse in the 2009/10 period which is when the baby boomers on average as a generation hit their peak earning years - thereafter becoming net/net disinvestors. I don't know. However, when you throw in the budget and trade deficits, costs of a endless war, the subprime fiasco, etc., things could get ugly in a hurry. Will any of this result in a new bull market for coins? That's hard to say. In my own case, I'm looking at coins as both a collector and an investor and going forward as a store of wealth. I read a quote from old Baron Rothschild where he said one should have 1/3 of his wealth in securities, 1/3 in real estate and 1/3 in rare art. Well, I know nothing about rare art, but do know a little about coins. Wifey and I are top heavy securities - via retirement accts, etc. Therefore, over the next couple of years, I'll be converting some of this to coins. Now before everyone tees off on me, I'll only be buying slabbed coins that I would collect anyway if I had the discretionary income. I'm not look for appreciation but for value stability. And I'll be going after the keys, again in the series that I've been collecting for years. I'll also go after CC mint stuff - morgans and gold. Perhaps a higher end set of CC morgans (ouch on the '89). Hey, I understand the stock market and have been investing directly for over 20 years. I'm a momentum investor and I've done very well. That said, I don't like the market right now and even less going forward. And I'm still making money because I'm long up to my ears in precious metals in one form or another - mutual funds, closed end funds, ETF's, and individual mining stocks including pink sheet OTCs. In summar, I think that Ambro is on to something and even though I think plain vanilla bullion will continue to do well, I concur completely. just my opinion, rono
With all due respect, this is incorrect. Something like a bond has an intrinsic value becuase it promises you fixed cash flow as a part of a contract. Even a stock promises ownership of a future value of cash. Each are priced based on the risk/reward preferences of a potential buyer, but in the end, there's something for the investor to hold on to. By contrast, I lump coins in with gold, oil, and pork bellies. The old thing you have to hang your hat on for valuation purposes is what the next guy is willing to pay. If a stock declines 90%, I can evaluate whether the prospects for the company make it a worthwhile purchase, and not concern myself with supply/demand. With a coin (or rare art), I need to ask whether the fundamental supply/demand situation has changed. Likewise, what you characterize as liquid is anything but. When you have to forgo 30% of the value of an asset in a bid/ask spread, that is not liquid. Contrast this with a stock where much less than 1% goes to the spread. There is no comparison.
